Siddhartha Nautiyal ORDER
Waseem Ahmed, Member (A)
1. The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-11, Ahmedabad, arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act, 1961 (here-in-after referred to as "the Act") relevant to the Assessment Year 2018-2019.
2. At the outset, it was noticed that there was a delay in filing the appeal by the assessee for 145 days. It was submitted by the assessee in the affidavit that the order passed by the Ld. CIT(A), dated 07/06/2022 was delivered in spam folder of e-mail. Therefore, the assessee could not come to know about the order of the ld. CIT(A). As such, it was realized by the assessee that when the recovery proceedings against the outstanding demand were initiated by the revenue. Thereafter, the assessee immediately approached the tax consultant to file the appeal before the Tribunal which was finally done dated 29/12/2022. However, in this process a delay of 145 days has occurred inadvertently. Thus, it was prayed by the assessee for condonation of delay.
3. On the contrary, the Ld. DR did not raise any serious objection after considering the reason for filing the appeal with the delay of 145 days and left the issue at the discretion of the Bench. Considering the above stated facts and the length of the delay, we deem it fit to condone. Hence, we condone the delay and proceed to adjudicate the issue on merit.
4. The assessee has raised the following grounds of appeal.
1. The order passed by the AO and confirmed by CIT (A) is bad in law and required to be quashed.
2. Ld.CIT(A) erred in law and on facts in making addition of Rs. 2295051/-by invoking section 40(a)(ia)of the Act ignoring fact that delayed payment charges would not partake character of interest u/s.194A and accordingly section 40(a)(ia).
3. Ld.CIT(A) ought to have considered that payee JM Financial Services Ltd. Has included payment by assessee in their income and accordingly as per second proviso to section 50(a)(ia),no disallowance has been called for.
4. Ld.CIT(A) failed to grant opportunity of personal hearing and thus violated principle of natural just ice and accordingly order passed by him required to be set aside.
5. Initiation of penalty proceedings u/s. 270A is justified.
6. The only issue raised by the assessee is that the Ld. CIT(A), erred in confirming the disallowance made by the AO for Rs. 22,95,051 on account of non-deduction of TDS u/s 194A r.w.s. 40(a)(ia) of the Act.
7. The AO during the assessment proceedings found that the assessee has claimed expense for Rs. 66,39,497/-and Rs. 10,10,675/-representing the delayed payment charges and interest payable. As per the AO, the assessee failed to deduct the TDS under the provisions of section 194A of the Act and therefore the AO disallowed the sum of Rs. 22,95,051/-being 30% of delayed payment charges and interest charges under the provision of section 40(a)(ia) of the Act and added to the total income of the assessee.
5. Aggrieved assessee preferred an appeal to the Ld. CIT(A). The assessee before the Ld. CIT(A) submitted that the impugned delay payment charges and interest payable charges were incurred on account of overdue payment of the purchase of shares made from the broker namely JM Financial services Ltd. As such the impugned expenses do not represent on the money borrowed from the parties. Accordingly, the assessee contended that the impugned charges, being part of the purchases, cannot be made subject to the provision of TDS.
6. It was also pointed out by the assessee that the delay payment charges and interest payable as discussed above does not fit within the meaning of interest as provided under section 2(28A) of the Act. The assessee in support of his contention has relied on various case laws which are reproduced in the order of the Ld. CIT(A).
7. However, the Ld. CIT(A), disagreed with the contention of the assessee on the reasoning that the shares were purchased by the assessee from the third party which was unknown to her. But the shares were purchased through the involvement of the broker, namely JM Financial Services Limited, which is not the seller. Nevertheless, the delayed payment charges and interest charges have been paid to JM Financial Services Limited. Therefore, the transaction on which assessee has incurred delay payment charges/interest charges cannot be defined in the category of interest on the purchases. Accordingly, the Ld. CIT(A), confirmed the order of the AO by making the reliance on various judgments which are reproduced in his order.
8. Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us. The assessee before us has filed the return submission running from pages 1 to 47 and reiterated the contention made before the Ld. CIT(A).
9. On the other hand, the Ld. DR vehemently supported the order of the authorities below.
10. We have heard the Ld. DR and considered the written submissions filed by the assessee. The controversy in the present case arises whether the delayed payment charges and interest expenses incurred by the assessee are part of purchases or it is an interest subject to the provision of TDS under section 194A of the Act. The provisions of Section 2(28A) of the Act defines the term 'interest' to mean interest payable in any manner in respect of any moneys borrowed or debt incurred (including a deposit, claim or other similar right or obligation) and includes any service fee or other charge in respect of the moneys borrowed or debt incurred or in respect of any credit facility which has not been utilized. Admittedly there is no money borrowed on which the assessee has incurred the interest expenses and this fact has not been disputed by the authorities below. In the present case, the delay payment charge and interest expense have been paid in relation to the purchases from the broker, namely JM Financial Services Limited. Undeniably, the assessee has purchased shares from the platform of the stock exchange where the buyers and sellers are not known to each other and the transactions between them are settled through the broker. So, in substance, we find that the broker is acting as a middleman authorized by the stock exchange in settling the transaction of purchase and sales between the respective parties and out of such transaction, the broker earns commission. It is also undisputed that the assessee cannot carry out transactions on the platform of the stock exchange without the involvement of the broker. Thus, we are of the view that the delay payment charge and interest expenses incurred by the assessee on the payment to the broker should be treated as a part and parcel of purchases of shares. It is because the broker is one of the integral parties in executing the transaction between buyer and the seller at the platform of stock exchange. Besides, we also note that the assessee has not borrowed any money from any party where the interest cost has been incurred. Therefore, we are of the view that the interest and delay payment charges in dispute cannot be made subject to the provision of TDS under the provision of section 194A of the Act. Accordingly, the question of making disallowance of the expenses on account of non-deduction of TDS under the provision of section 40(a)(ia) of the Act does not arise.
11. Before parting, it is also important to note that the assessee before the AO has contended that he has already made disallowance of the expenses incurred without deducting the TDS in the computation of income. There is no dispute to the fact that the contention of the assessee was not correct. However, it does not mean that the assessee on submitting wrong details should be made to suffer on account of the disallowance which are not warranted under the provision of law. Accordingly, we set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is hereby allowed.
12. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the Court on 27/09/2023 at Ahmedabad.
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